Tencent Technology

Tencent Technology Co., Ltd.

Overview: Successful with Copying

Tencent Technology Co., Ltd. is an investment holding company, providing multimedia and internet services in China. The company was founded in 1998 and is mainly generating its revenue with its first and most famous product: the instant messaging network "QQ Messenger".

From 2004 on, the company started its business in the field of online games. After Tencent established itself on the online games market, it started to develop other different online services, such as its C2C auction site "PaiPai.com" or its media player "QQ Player".

All of Tencent's products have in common, that they show remarkable similarities with the products of international competitors. Nevertheless, Tencent is performing very successful with this copying strategy.

Due to the fast growing Chinese internet market, Tencent grew constantly in the last years. Hence, the company became one of the biggest internet companies worldwide and is operating the biggest internet community, the QQ Messenger.

Internationalization Strategy: Working on the international Breakthrough

Compared to the Chinese internet market (which is very special due to censorship and state control), Tencent has not been really successful entering overseas markets. After the launch of an English version of the QQ messenger in 2007 turned to be a failure, Tencent announced to develop an international social network in 2011. However, there has been no further news about it yet.

Alongside with its internationalization efforts with QQ, Tencent acquired over 100 overseas companies where most of them are operating in the online gaming industry. This seems to be one of the next attempts towards a successful internationalization. Most of the acquisitions were made in South Korea, where Tencent wants to use the local R&D advantages in the field of online games to develop advanced games for the global game market. Recently, there have been rumors about an upcoming cooperation with Zynga, the developer of the world’s biggest social game Cityville, in 2011. It seems that both copmanies plan to introduce Cityville to the Chinese market together.

Still, the company cannot be seen as a big player on the global internet market like Facebook, Google or Amazon, without a missing major breakthrough of its main product the QQ messenger on the international market.

R&D and Intellectual Property: Research in Telecommunication- and Information Technology

Tencent wants to self-develop core internet technologies and to enhance its development and innovation capabilities, besides its previous copying strategy. To achieve this, the company invested around USD 16 mn to establish China's first internet research institute, in 2007.

Tencent wants to self-develop core internet technologies

Additionally more than 50 percent of Tencents employees are working in the R&D division.

The following graph illustrates the number of patent and utility model applications between 2000 and 2010. The main difference between a patent and an utility model is the durability and the strength of protection. Patents are protected for twenty years, while utility models are only protected for ten years. Thus, an utility model can be described as a weaker form of patent.

Between 2002 and 2007, a rapid growth of patent applications can be observed. In the following years, there was a small decrease of about 200 applications between 2008 and 2010. This negative trend is not expected to continue in the next years, when Tencent's research institute overcomes possible startup problems. That Tencent only applied for patents indicates that Tencent considers strong protection necessary for its business.

The geographical distribution of the intellectual property applications reflects Tencent's focus on China in the early years, and its increasing internationalization efforts. While sixteen percent of the applications where filed in foreign countries in the period between 2005 and 2007, the number increased to 34 percent between 2008 and 2010. Tencent has no clear focus towards a special country, as the bigger part of the foreign applications are worldwide applications.

The distribution of the applications across technological sectors shows a clear focus on two sectors: telecommunications and information technology. These two sectors account for about 96 percent of all applications. Hence, they are the emphasis of Tencent's R&D strategy.